Post by The Big Daddy C-Master on Jul 30, 2015 4:37:06 GMT -5
www.investopedia.com/articles/personal-finance/072415/will-pepsis-new-craft-soda-work-pep.asp?utm_source=newstouse&utm_medium=email&utm_campaign=NTU-7/29/2015
According to Beverage Digest, U.S. carbonated soft drink volume has declined for 10 straight years, with a 0.9% decline in 2014. If you exclude energy drinks, it’s even worse with a 1.2% decline.
More specifically, PepsiCo, Inc. (PEP) has underperformed its peers in this category, suffering a carbonated soft drink volume decline of 1.4% in 2014. Coca-Cola Co. (KO) saw its carbonated soft drink volume slip 1.1% in 2014. Dr Pepper Snapple Group, Inc. (DPS), on the other hand, delivered a flat carbonated soft drink volume performance for the year. (For more, see: PepsiCo's $66B Global Snack and Drink Empire.)
In the second quarter of this year, Pepsi saw its carbonated soft drinks volume slip 3% in North America. It wasn’t much better in the year-ago quarter either, when volume slipped 2%. However, in the second quarter non-carbonated beverage volumes increased 4%, which was an improvement over last year when non-carbonated beverage volumes increased 1%. These are mixed results, but one very important number will be revealed below.
On Trend
Despite soft drinks losing their luster, Pepsi has demonstrated that it has no interest in giving up. The company’s reasoning is simple: Consumers like the taste. The dilemma has been that consumers have also become more health conscious, and many of them have no interest in consuming sugary sodas that include high fructose corn syrup and other potentially harmful substances. This has led to soda being seen as uncool by the all-important millennial generation (all-important due to its massive size). The solution? Make soda cool again. (For more, see: The Importance of Millennial Consumers.)
A Stubborn Company
In order to do this, Pepsi has opted to be stubborn. In fact, it has launched its Stubborn Soda line. The line includes the following flavors:
Black Cherry with Tarragon
Classic Root Beer
Agave Vanilla Cream
Lemon Berry Açaí
Orange Hibiscus
Pineapple Cream
Those are some enticing flavors, but they’re not the primary reason Stubborn might have long-term potential. The reason for that relates to no high fructose corn syrup as well as real sugar and natural flavors. Pepsi is also touting that its tap-like pouring ritual will be appreciated and enjoyed by consumers. Pepsi might be right, but once again it’s all about the healthy angle. A craft-like pouring apparatus to be found in participating restaurants would just be gravy if Stubborn is a success. (For more, see: Soda Companies Went Flat in Q2.)
A Diversification Giant
Remember that very important number that would be revealed below? Here it is: Less than 25% of Pepsico’s global revenue comes from carbonated soft drinks. When most people hear the word ‘Pepsi’ they think of soda, but Pepsi also owns Gatorade, Tropicana, Aquafina, Naked Juice, Lipton Tea, Doritos, Cheetos, Tostitos and many other household name brands.
Pepsico’s diversification is a big part of the reason why it’s one of the most resilient stocks in the consumer goods sector. It has quietly increased its revenue over the past three years while remaining steady on the bottom line with massive profits. It has generated operational cash flow of $10.6 billion over the past 12 months. It also pays a safe 3% dividend yield and the stock has appreciated 6.73% over the past year. (For more, see: The Secret to PepsiCo’s Success Isn’t Soda.)
Pepsi isn’t the most resilient stock you will find overall, but if you want exposure to consumer goods, it should be a starting point. As far as Stubborn goes, the brand is currently in the incubation phase. However, Pepsi plans on partnering with some restaurants as early as this summer for test runs. For a company with massive cash flow generation, this small project doesn’t present much danger if it fails. On the other hand, the greatest things start small, and though it might take years, craft soda could gain traction, especially if Pepsi and Coca-Cola's Coke Life market their brands effectively.
The Bottom Line
To answer the question in the title: Will it Work? My educated guess would be 'yes' but on a very small scale over the next few years. If the taste is good and the negative health implications are significantly reduced, then it all comes down to marketing. (For more, see: 3 Great Business Battles.)
Read more: www.investopedia.com/articles/personal-finance/072415/will-pepsis-new-craft-soda-work-pep.asp#ixzz3hMkh8D00
Follow us: @investopedia on Twitter
According to Beverage Digest, U.S. carbonated soft drink volume has declined for 10 straight years, with a 0.9% decline in 2014. If you exclude energy drinks, it’s even worse with a 1.2% decline.
More specifically, PepsiCo, Inc. (PEP) has underperformed its peers in this category, suffering a carbonated soft drink volume decline of 1.4% in 2014. Coca-Cola Co. (KO) saw its carbonated soft drink volume slip 1.1% in 2014. Dr Pepper Snapple Group, Inc. (DPS), on the other hand, delivered a flat carbonated soft drink volume performance for the year. (For more, see: PepsiCo's $66B Global Snack and Drink Empire.)
In the second quarter of this year, Pepsi saw its carbonated soft drinks volume slip 3% in North America. It wasn’t much better in the year-ago quarter either, when volume slipped 2%. However, in the second quarter non-carbonated beverage volumes increased 4%, which was an improvement over last year when non-carbonated beverage volumes increased 1%. These are mixed results, but one very important number will be revealed below.
On Trend
Despite soft drinks losing their luster, Pepsi has demonstrated that it has no interest in giving up. The company’s reasoning is simple: Consumers like the taste. The dilemma has been that consumers have also become more health conscious, and many of them have no interest in consuming sugary sodas that include high fructose corn syrup and other potentially harmful substances. This has led to soda being seen as uncool by the all-important millennial generation (all-important due to its massive size). The solution? Make soda cool again. (For more, see: The Importance of Millennial Consumers.)
A Stubborn Company
In order to do this, Pepsi has opted to be stubborn. In fact, it has launched its Stubborn Soda line. The line includes the following flavors:
Black Cherry with Tarragon
Classic Root Beer
Agave Vanilla Cream
Lemon Berry Açaí
Orange Hibiscus
Pineapple Cream
Those are some enticing flavors, but they’re not the primary reason Stubborn might have long-term potential. The reason for that relates to no high fructose corn syrup as well as real sugar and natural flavors. Pepsi is also touting that its tap-like pouring ritual will be appreciated and enjoyed by consumers. Pepsi might be right, but once again it’s all about the healthy angle. A craft-like pouring apparatus to be found in participating restaurants would just be gravy if Stubborn is a success. (For more, see: Soda Companies Went Flat in Q2.)
A Diversification Giant
Remember that very important number that would be revealed below? Here it is: Less than 25% of Pepsico’s global revenue comes from carbonated soft drinks. When most people hear the word ‘Pepsi’ they think of soda, but Pepsi also owns Gatorade, Tropicana, Aquafina, Naked Juice, Lipton Tea, Doritos, Cheetos, Tostitos and many other household name brands.
Pepsico’s diversification is a big part of the reason why it’s one of the most resilient stocks in the consumer goods sector. It has quietly increased its revenue over the past three years while remaining steady on the bottom line with massive profits. It has generated operational cash flow of $10.6 billion over the past 12 months. It also pays a safe 3% dividend yield and the stock has appreciated 6.73% over the past year. (For more, see: The Secret to PepsiCo’s Success Isn’t Soda.)
Pepsi isn’t the most resilient stock you will find overall, but if you want exposure to consumer goods, it should be a starting point. As far as Stubborn goes, the brand is currently in the incubation phase. However, Pepsi plans on partnering with some restaurants as early as this summer for test runs. For a company with massive cash flow generation, this small project doesn’t present much danger if it fails. On the other hand, the greatest things start small, and though it might take years, craft soda could gain traction, especially if Pepsi and Coca-Cola's Coke Life market their brands effectively.
The Bottom Line
To answer the question in the title: Will it Work? My educated guess would be 'yes' but on a very small scale over the next few years. If the taste is good and the negative health implications are significantly reduced, then it all comes down to marketing. (For more, see: 3 Great Business Battles.)
Read more: www.investopedia.com/articles/personal-finance/072415/will-pepsis-new-craft-soda-work-pep.asp#ixzz3hMkh8D00
Follow us: @investopedia on Twitter
